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There is no question that the IoT will affect our daily lives. The estimated 10 to 20 billion devices are expected to grow to 40 to 50 billion by 2020, and one of the industries where IoT will make a major impact is in financial services—and especially insurance. Leveraging IoT, insurance companies are reimagining the business, creating innovative products, driving superior customer experience, and de-risking compliance.
Many of the IoT devices being launched target consumers, with appliances and other home devices among the first offerings. It makes sense, therefore, that home insurers will look to the IoT to help with a customer base that is becoming increasingly connected and IoT-savvy.
Take, for example, inclement weather, which is a leading cause of home insurance claims. An ISO survey covering the period of 2009-2013 showed that approximately 1 in 31 homes experienced loss due to wind and hail. In addition, 1 in 55 homes experienced water damage, including freezing, which could be weather-related.
Now, suppose a carrier were to gather real-time and historical weather and geospatial data; it could then identify those policy holders most likely to be impacted by a hurricane or a snow storm. These customers could have IoT devices installed in their homes to alert the carrier to conditions similar to those that cause damage, and, this, in turn, will help with claims.
This IoT data will also help the carrier in a number of other functions, letting them:
- Reach out to field adjudicators with likely type of claims
- Project IBNR and loss triangles
- Improve speed of claim reporting and settlement
- Leverage analytics to detect potential fraudulent claims
- Establish loss reserves
Data Quality Becomes Crucial
At the center of this IoT function is the quality of the data. For the data to have the integrity needed for IoT, it must go through four phases. The information needs to be captured from relevant sources, such as sensors and devices; it must then be cleansed and enriched with additional information from maps, weather reports, municipal data, etc.; the resulting, combined data must be analyzed using industry-specific models and algorithms to derive actionable insights; and, finally, the action itself needs to be communicated in real-time with alerts and workflows to users and stakeholders in the ecosystem.
Data as Commodity
With the IoT, data is now a commodity. The speed and efficiency with which a carrier manages its data—without getting overwhelmed by it—will be a competitive differentiator. Once this data is being acquired and processed, it needs to be secured. Security will pose a challenge because many of the end-point devices are low-cost and without sophisticated protection. Partnerships could be the answer to the “security question,” which will come to the forefront in the coming years.
We are already getting a glimpse of what the future will bring. Allstate is providing discounts of up to 25 percent on insurance premiums for homes with smart monitoring (surveillance and home security). Chubb Insurance offers premium credits up to 5 percent when a water-leak-detection system or a temperature-monitoring system is installed. We are excited to see what the coming years will bring for this transformative technology.